SURVIVING THE CRISIS – FINANCIAL RISK
Franco Azzopardi

Twin Cities law firms say they must
their staffs -
- including attorneys -- to bring expenses in line with decreasing revenue.
The recessionary forces that have battered law firms on the East and West coasts have reached
Minneapolis and St. Paul.
The problem is that clients aren't doing as many transactions, companies are cutting their outside legal expenses, and business is just
up.
StarTribune.com

"In this challenging economic environment, we have got to stay lean, highly productive and focused ”
[Randy King, chief executive and managing director of
Merchant & Gould.]

"Every company in this economy is looking at its
. We are a revenue business," said Cooper Ashley of
Maslon Edelman Borman & Brand.
[Bill White , publisher of Minnesota Law & Politics]

The current economic downturn poses a dilemma to professional services businesses like yours. Do you wait and see what happens with the recession? or do you
to make your business more agile to adapt to market conditions?

• If you're struggling to get the work in, you need to learn more about marketing .
• If you're struggling to keep up with the work you already have, you need to learn more about practice management .
• If you're struggling with attrition rate, unpaid client bills, or unpredictable cash flow, you need to learn more about
and put systems in place to protect yourself.

Today we touch on
3 key arguments
:
Controlling time is key to effective billing!!??
Feeding the marching army in time of quiet...
???
Big deal...
is after all just transposing numbers in a spreadsheet!!!???

Some background to

:

time
So is this our only income generating asset, or is it our stock in trade???

Revenue = Time available x efficiency x charge rate

Some other common metrics...

Charged hours/Paid hours (
) 65 – 75%

EBIT / Sales between
15 – 20%

policy – mainly in office premises

– ???

“Challenge assumed constraints!!.”
[Ken Blanchard, ‘Leading at a higher level’]

...to start with where is the knowledge and the human element in the profit equation??
Hmm! that changes the whole chemistry of financial equations.
Industrial Age or
Age

So how do we integrate
and the
into our budgets and metrics ?

In actual fact, revenue of a PSF is much more complex than just the above algebraic equation as it involves the interplay of: human capital
(capital that leaves the elevator at night) structural capital
(knowledge repositories, databases etc) and social capital
(customers).
This is the make-up of our

This brings us to
ROI
But how do we assess our RETURNS when we write off our most significant investments immediately!
?
If only we could attach a value to these like a manufacturing business would capitalise assets

Theodore W Schulz, Nobel Prizewinning economist, theorized in
1961 in American Economic Review, that investments in human capital should be accounted for in the same manner as investments in plant and machinery.

‘KNOWLEDGE WORKER PRODUCTIVITY
REQUIRES THAT THE KNOWLEDGE WORKER IS
SEEN AND TREATED AS AN ASSET, RATHER
THAN A COST.
[Peter Drucker, 1999, Management challenges for the 21st century]

is the applause of the level of: motivation of your knowledge workers and the robustness of your client relationships
.
Hence the TRIPLE BOTTOM LINE .

Controlling time is key to effective billing!!!???
Revenue = Time available x efficiency x charge rate
For decades, Law firms have genetically encoded its members with the core belief that they sell only time.
Surely professionals are not successful because they sell hours, since no customer buys hours!

Park your brains at the door dude!!!
[industrial age adage]
...Stick with the time sheet and hang the stopwatch round your neck!!!...
In a PSF it is not ‘working harder that counts, but
WORKING SMARTER...
IT IS NOT HOW LONG IT TAKES BUT WHAT WE
GIVE WITHIN TIME CONSTRAINTS’
Lagging timesheets versus
Project management
Time billing versus
Value based billing

Client’s purse?
Client’s requirements?
Matching talent pool?
Brand equity?
Market conditions?
Client’s perceived value
(PV) of service offering?
Ability of firm to quote close to PV?
Clear terms of business?

Hang on!!!!!
What about
?
Surely we can’t just ignore the core of our PM!
Time-sheets are essential for:
Building experience
To administer staff costs
To support in Project Management
To budget for lapsed time
To build job cards

Select the right KPIs that increase partners’ value ...
focus on Leading rather than Lagging Indicators.
Simplify your dashboard
Timesheets – lapsed time%
SCR = (payroll+o/h)/pd hours x(1-lapsed time)
SRR=(Total costs +profit)/billed hrs
WIP-Debtor-Cash cycle

SNAPSHOT DASHBOARD
Cumulative Costs vs Forecast
$1,60
$1,40
$1,20
$1,00
$0,80
$0,60
$0,40
$0,20
$0,00
$7,00
$6,00
Cumulative Fees vs Forecast
$5,00
$4,00
$3,00
$2,00
$1,00
$0,00

(…CONT)
Monthly Cash Burn
$0 янв.09
$(100 000) фев.09
мар.09
апр.09
май.09
июн.09
июл.09
авг.09
сен.09
окт.09
Budgeted Cash Burn
Actual Cash Burn
Линейная (Budgeted Cash Burn)
Линейная (Actual Cash Burn) ноя.09
дек.09
$(200 000)
$(300 000)
$(400 000)
$(500 000)
$(600 000)
$(700 000)
$(800 000)
$(900 000)

Feeding the marching army...
Cost or Investment???
Only if you think there is a mismatch in the skill sets on inventory and the requirements of both the contracted and pipeline legal work.

Part of staff costs are the
of the firm!
What are the skills that are required?(Brand promise, Market demands)
Personal Competencies Development,
Knowledge Elicitation,
Leadership Development

Budgeting is after all just transposing the numbers in a spreadsheet!!!???
SW OT
Contracted and pipeline projects
Forecast targets and conversions
Expected SRR
Expected level of activity
Investment budget
Dividend policy
Staff costs
Overheads

What about the Support Structures ?
Do we have clear O&M suggesting procedures from
RFP, to Client Acceptance, to Project classification, to Project management procedures, till sign-off, billing and converting to cash?
Support structures should be as robust as the speed that is expected in reducing customer conversion to client and project acceptance to cash.

Administrative departments...
Which functions could be simplified without a loss in performance?
Marketing departments...
“cutting down on marketing to save on costs is like stopping the watch to save on time!!”
(Henry Ford)

Conclusion
People and Knowledge are the revenue generating assets of the firm.
The Client is the BOSS with the purse.
Management seeks to attract and retain both
The
Culture of the firm is the what glues these together.

‘Knowledge is the business fully, as much as the customer is the business. Physical goods or services are only the vehicle for the exchange of customer purchasing power against business knowledge’.
[Peter Drucker, 1964, Managing for Results]